Explaining and Forecasting Exchange Rates with Order Flows
Richard K. Lyons
This paper summarizes key lessons learned from using models from microstructure finance to explain and forecast exchange rates. The first section is an executive summary, which outlines seven lessons that pertain to how different transaction-flow measures (e.g., interbank flows versus end-user flows) perform in explaining concurrent returns and forecasting future returns. Section 2 addresses three overarching topics, including: (1) how various transaction-flow measures differ, (2) causality between transaction flows and returns and how to think about it, and (3) strategies for pinning down underlying flow drivers. Section 3 addresses empirical results underlying the seven lessons in section 1.
Exchange rates; order flow; price determination; forecasting; microstructure
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.